UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN …

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF OHIO

In Re: Ronald and Leslie Cantelli

Debtor(s)

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JUDGE RICHARD L. SPEER

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Case No. 12-30748

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DECISION AND ORDER

This cause comes before the Court after an Evidentiary Hearing on the Motion of the United States Trustee to Dismiss. (Doc. No. 48). As the basis for its Motion to Dismiss, the United States Trustee cited to ? 707(a) and ? 707(b) of the Bankruptcy Code. At the commencement of the Hearing, however, the United States Trustee withdrew its action to have this case dismissed under ? 707(b). As such, the Hearing held on the Motion of the United States Trustee to Dismiss was limited to the applicability of ? 707(a) ? providing for the dismissal of a debtor's Chapter 7 bankruptcy case when "cause" is shown. The Debtors have objected to the dismissal of their case under ? 707(a). (Doc. No. 36).

At the conclusion of the Hearing held in this matter, the Court deferred ruling on the merits of the Motion of the United States Trustee to Dismiss so as to afford the opportunity to fully consider the evidence and arguments presented by the Parties. The Court has now had this opportunity and, for the reasons set forth herein, finds that the Motion of the United States Trustee has merit. Accordingly, unless the Debtors timely convert their bankruptcy case, this case will be dismissed.

BACKGROUND

The Debtors in this case are Ronald and Leslie Cantelli, husband and wife (hereinafter referred to collectively as the "Debtors"). Mr. Cantelli is a professional cabinet maker, owning his

In re Ronald and Leslie Cantelli Case No. 12-30748

own business. During the course of operating his cabinet making business, the Debtor has employed a number of persons, presently having 12 employees in his charge. Since 2009, Mrs. Cantelli has worked full-time for her husband's cabinet making business in the capacity of an "office manager."

On February 28, 2012, the Debtors filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. (Doc. No. 1). At the time they filed for bankruptcy relief, the Debtors had two minor children, a son and a daughter.

In seeking bankruptcy relief, the Debtors disclosed two interests in real property: their residence, which they valued at $865,000.00; and a second parcel of property, which they valued at $15,000.00. Title to both these properties is held in the name of the "Leslie Cantelli Revocable Living Trust."

The Debtors' residence is a four-bedroom, three-and-one-half-bath home with 5,176 square feet of living space. The Debtors constructed the property in 2002, at a cost of approximately $450,000.00. Because of Mr. Cantelli's professional expertise and contacts, the Debtors were able to construct their home at a below market rate. The Debtors financed the construction of their home by initially taking a home-mortgage loan in 2002 in the amount of $250,000.00.

As a part of their bankruptcy filing, the Debtors disclosed an interest in a variety of personal assets, including three automobiles: a 2002 Ford F-150, a 1998 Jaguar XK8, and a 1999 Land Rover Discovery II. According to the information provided by the Debtors, the value of each individual vehicle, none of which are encumbered by any lien or other interest, does not exceed $3,200.00. It was also brought to the Court's attention that Mrs. Cantelli has in her possession and regularly uses a vehicle which is owned by her mother, but for which Mrs. Cantelli reimburses her mother the sum of $288.77 per month to service the debt secured against the vehicle.

In all, the Debtors disclosed in their bankruptcy filing assets worth $1,201,790.67 against liabilities totaling $1,569,675.44. After their residence, the Debtors' most significant asset in terms

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In re Ronald and Leslie Cantelli Case No. 12-30748

of value was listed as "Funds due from business for loans to company," with an assigned worth of $300,000.00. No actual documentation evidencing this asset, however, was provided.

The Debtors' liabilities were listed in these terms: (1) $1,137,019.77 in secured claims; (2) $275,521.72 in unsecured, priority claims; and (3) $157,133.95 in unsecured, nonpriority claims. The bulk of the Debtors' secured obligations may be divided into two components: mortgages and tax liens. The mortgage obligations total $783,974.00, consisting of a first mortgage in the amount of $675,544.00 and a second mortgage in the amount of $108,430.00. Both of these mortgages encumber the Debtors' residence. Also encumbering their residence, a tax lien in the amount of $270,521.72, while against their second parcel of real property, there exists another tax lien for the sum of $72,255.00.

Duplicating the sum of the tax lien against their residence, the Debtors' unsecured, priority debt was set forth in the sum of $270,521.72. As the basis for this obligation, the Debtors stated that it arose from unpaid federal withholding taxes for the years 2004 through 2008. Finally, the information submitted by the Debtors shows that their $157,133.95 in unsecured, nonpriority debt consists mostly of credit-card obligations.

As a whole, the Debtors set forth that their obligations are primarily in the nature of business debts ? a point which the United States Trustee, by withdrawing that portion of its Motion to Dismiss under ? 707(b), did not contest.1 As it regards the business nature of their debts, the information presented to the Court shows that, since at least 1990, Mr. Cantelli has operated his cabinet making business. For his business operations, Mr. Cantelli has owned a controlling interest in the following business entities, some of which, as noted below, are now longer in operation:

Chattabrooke Cabinets, Inc., formed June 1990. Business ceased operating, filing for bankruptcy protection in 1992.

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11 U.S.C. ? 707(b) applies only to debtors "whose debts are primarily consumer debts . . . ." Page 3

In re Ronald and Leslie Cantelli Case No. 12-30748

QMC Cabinet Makers, Inc., formed June 1995.

In January 4, 2007, articles of incorporation were cancelled for failure to pay the necessary franchise tax.

Ohio Cabinet Makers, Inc., formed June 1995.

By 2004, business had ceased operations.

KEC Holdings, LLC, formed March 2005.

Currently in operation. Functions as holding company whereby it owns equipment, which is then leased to Mr. Cantelli's cabinet making business. Between 2008 and 2011, KEC generated net rental of $202,866.00. (Doc. No. 28, at pg. 12).

Northern Lights Cabinetry, LLC, formed 2006.

Currently in operation. Constitutes the business entity under which Mr. Cantelli presently operates his cabinet making business.

Under one or more of these business entities, Mr. Cantelli's cabinet making business has been in continuous operation. Although the exact mechanics were never disclosed, it was indicated to the Court that when one of the above business entities used in Mr. Cantelli's cabinet making business became defunct, its assets, but not its liabilities, would be transferred to a newly formed business for little or no consideration.

In addition to the foregoing businesses, which were limited to Mr. Cantelli's cabinet making operation, the Debtors also, on a prepetition basis, maintained interests in these concerns:

C&C Investments, Partnership (Mr. Cantelli, 50% owner)

Owned six separate parcels of rental real estate, consisting of one apartment building, one commercial building, one condominium, and three houses.

In 2008, the real estate was sold to a third party, Feick, LLC, for the sum of $180,000.00. The purchase agreement, however, provided that C&C Investments would continue to rent the properties, with C&C

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Investments paying to Feick, LLC, a set amount based upon the purchase price. As a part of this transaction, C&C Investments maintained a three-year option to repurchase the properties for the sum of $216,000.00. This agreement was renewed in 2011 under substantially identical terms. For the years 2009 through 2011, C&C Investments reported net losses for its rental activities.

In his bankruptcy petition, Mr. Cantelli listed this business as "defunct."

Hoty 250 Water, Ltd., (Mr. Cantelli, 1% owner)

In operation from 2000 to 2009.

Mr. Cantelli sold his interest in 2010, receiving a distribution of $19,986.00

Hoty MD, Ltd., (Mr. Cantelli, 1% owner)

In operation from 2000 to 2008.

Mr. Cantelli sold his interest in 2011, receiving a distribution of $11,120.00

At the time they sought bankruptcy relief, the Debtors did not disclose Mr. Cantelli's sale of his interests in the Hoty business entities. In addition, a recent loan of approximately $12,000.00 taken by the Debtors against a life insurance policy was not initially disclosed.

As exhibited by the substantial tax claims disclosed by the Debtors, Mr. Cantelli, in operating his cabinet making business, often became delinquent in his tax obligations. A large portion of the delinquent tax obligation arose from Mr. Cantelli's failure to pay to the Internal Revenue Service (hereinafter the "IRS") payroll taxes withheld from employees' wages. Based upon the nonpayment of taxes, various tax liens have been filed against the Debtors' property and those business entities controlled by Mr. Cantelli. (Doc. No. 49, UST. Ex. 19-1).

The tax deficiencies, which gave rise to the tax liens, began in the year 1990, and occurred frequently thereafter. Of note, beginning in the year 2000, the evidence before the Court shows that

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